Economic conditions improved through much of 2025, but now appears more uneven. Inflationary pressures are re-emerging, global uncertainty is rising, and the housing market is feeling the effects. Here is a clear-eyed look at where things stand.

The Economic Backdrop Has Shifted

While headline inflation showed signs of easing through 2025, recent trends suggest that improvement may be short-lived. Ongoing geopolitical tensions and supply chain disruptions are placing upward pressure on energy, materials, and transport costs, which is expected to flow through to both construction costs and broader consumer prices. Risks are skewed to the upside.

Interest rates remain restrictive, with the potential for further tightening if inflation proves more persistent. That continues to constrain borrowing capacity and weigh on household demand across the board.

Households Are Still Under Pressure
The improvement in economic conditions has not translated into relief for most households. Real wages are only marginally improving, consumer sentiment remains below neutral, and spending is increasingly concentrated in essential categories. Discretionary consumption remains subdued.

The labour market, while still resilient, is showing early signs of softening. Unemployment is edging higher and employment growth is becoming more volatile. The trend points to gradual cooling rather than continued strength, which matters for property demand and buyer confidence.

Population Growth Is Moderating But Still Supportive
Population growth continues to support underlying housing demand, though it is moderating from recent peaks and becoming more reliant on overseas migration. That shift has implications for where demand concentrates and what type of housing stock it drives, with higher density and more affordable product typically more relevant to new arrivals than detached housing.

Housing Conditions Have Stabilised After a Stronger 2025
Housing conditions improved through 2025 but are now stabilising. Growth was led by Perth, Brisbane, and Adelaide, while Sydney and Melbourne underperformed relative to other capitals. Land outperformed across the board, reflecting ongoing supply constraints that have been a persistent feature of the market.

Lending rebounded, with broad growth across owner occupiers and investors and investor lending accelerating notably. That said, demand remains defensive. Around 73% of lending activity is concentrated in established housing, and there has been a clear shift toward affordability driven product across buyer types.

Supply Has Improved But Delivery Remains the Problem

Approvals and commencements lifted through 2025, with townhomes driving much of that growth. Higher density housing remained volatile and feasibility challenged throughout the period.

Completions tell a more sobering story. Output remained flat year on year, detached housing declined, and any uplift was limited to higher density projects. The gap between approvals moving in the right direction and stock actually reaching the market remains wide, and cost pressures are making it wider. Global supply disruptions, material cost escalation, and labour shortages are all contributing to a more difficult delivery environment heading into 2026.

Want the Full Picture?

This article draws on findings from RPM Group’s Q4 2025 National Economic Report. Access the complete data and market forecasts in the full report.